Foreign Invasion at the Fed

Janet Yellen is officially our next Federal Reserve chairperson. My personal view is we don't need a Fed chief because we don't need the Fed. However, if we must have such an institution, it should at least be competent. By that standard, Yellen is a fine choice.

Last month, the Obama administration floated economist Stanley Fischer's name to fill the vacancy Yellen will leave in the Fed's #2 job. I said he was a strange choice . . . and that Wall Street's reaction was even stranger.

"Whatever is necessary to put us on the right course, he will do," gushed one columnist. Since the White House formally announced Fischer's nomination as Fed vice chair last week, let's drill into this sentence a bit deeper.

To say Fischer will "put us on the right course" logically presupposes we are currently not on the right course. Otherwise, no change is necessary. Who steered us into this wrong course, and where is it leading us?

The first suspect: outgoing Fed chair Ben Bernanke. Immediately behind him would be his vice chair, Janet Yellen, who fully endorsed all of Bernanke's policy ideas.

Now let's rearrange clauses of the quote above. "He [Fischer] will do whatever is necessary to put us on the right course."

In order to believe this, one must also believe that Yellen will not do "whatever is necessary." This is why Wall Street, speaking through its pundits, wants Fischer on the bridge. He will navigate us on the desired but unspecified course.

Now, it may be the case that Fischer is a more qualified navigator than Yellen is. His resume is certainly impressive. Nonetheless, he will be the Fed's vice chair, not its chair. If his role is to wrest control away from Yellen, those board meetings will be more than a little uncomfortable.

Then there is the divided loyalty issue. Fischer is a dual citizen of the United States and Israel. He was, in fact, the head of the Bank of Israel until quite recently. His job there was to promote Israel's economic growth. His job here will be to promote U.S. growth.

Frankly, I do not understand why either Israel or the United States would accept a senior central bank leader whose national loyalty is partly elsewhere. It makes sense only in a globalized financial system where national borders are meaningless.

If the Senate confirms Fischer, he will be a heartbeat away from the most important financial office in the world. His fans are confident he will put "us" on the right course. Yet we don't know where that course leads, and we don't who know whose flag Fischer salutes.